This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the bottom of any article.

May 8, 2013

FINRA Slams Three Firms for Anti-Money Laundering Violations

Four executives were also fined and suspended

More On Legal & Compliance

from The Advisor's Professional Library

Updating Form ADV and Form U4
When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.

Suitability and Fiduciary Duty
Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.

The Financial Industry Regulatory Authority (FINRA) announced Wednesday that it has fined three firms a total of $900,000 for failing to establish and implement adequate anti-money laundering (AML) programs and other supervisory systems to detect suspicious transactions. FINRA also fined and suspended four executives involved.

FINRA imposed the following sanctions.

Atlas One Financial Group, Miami, fined $350,000; Napoleon Arturo Aponte, former chief compliance officer and AML compliance officer, fined $25,000 joint and severally with the firm, and suspended for three months in a principal capacity;

Firstrade Securities, Flushing, N.Y., fined $300,000; and

World Trade Financial Corp. (WTF), San Diego, fined $250,000; President and Owner Rodney Michel fined $35,000 and suspended in all capacities except as a financial operations principal for four months; Chief Compliance Officer Frank Brickell fined $40,000 and suspended from association in all capacities for nine months; trade desk supervisor and minority owner Jason Adams fined $5,000 and suspended for three months in a principal capacity

“Today's actions reinforce FINRA’s continued focus on firms’ ability to identify and respond to potential misuse and abuse of the markets,” said Brad Bennett, FINRA executive vice president and chief of enforcement. “Firms must have adequate AML and supervisory systems in place to detect and report suspicious transactions.”

FINRA found that between February 2007 and May 2011, Atlas One failed to identify suspicious account activity or did not adequately investigate numerous AML “red flags.”

For example, in 2007, the U.S. Department of Justice (DOJ) froze six Atlas One accounts that were controlled by one customer in connection with a money laundering scheme, according to FINRA. “Even though the accounts listed the same mailing address in San Jose, Costa Rica, and an email address for another Atlas One customer as contact information for the account and the other customer’s information had been utilized as contact information for the frozen accounts, Atlas One failed to perform any additional scrutiny of the accounts that had not been part of DOJ’s action,” FINRA said in a statement.

FINRA also found that “certain customers’ accounts engaged in a pattern of activity consisting of moving millions of dollars through the accounts while conducting minimal-to-no securities transactions.” Atlas One’s AML program “required Aponte to monitor for potentially suspicious activity and AML red flags, investigate suspicious activity and report suspicious activity by filing a suspicious activity report (SAR), when necessary, which he failed to do,” FINRA said.

In a separate case, FINRA found that Firstrade, an online trading firm catering to the Chinese community, failed to implement an adequate AML program to detect and report suspicious transactions, including potential manipulative trading. “Many of the suspicious transactions involved Chinese issuer stocks and some of the most suspicious activity in customer accounts was apparent prearranged trades of Chinese issuer stock done in related accounts.”

In the third case, FINRA found that WTF, Brickell, Michel and Adams failed to create and enforce a supervisory system and written supervisory procedures to monitor for unlawful transactions in unregistered penny stocks.

“Between March 2009 and August 2011, WTF bought and sold more than 27.5 billion shares of 12 penny stock issues on behalf of one customer, Justin Keener, generating approximately $61 million in investor proceeds,” FINRA said. In October, FINRA barred Keener following a disciplinary hearing for his failure to provide FINRA with documents and information after he purchased an interest in a FINRA member clearing firm.

“Despite the fact that the securities traded were not properly registered and were not eligible for an exemption to registration, WTF and Brickell executed the transactions. The business generated by Keener's transactions represented the majority of WTF's business and revenue,” FINRA said. WTF and Michel also failed to supervise Brickell, who was acting as a producing manager when making the stock liquidations at issue. WTF, acting through Brickell, also failed to have a program reasonably designed to monitor for and detect and report suspicious activity, as required by the Bank Secrecy Act, FINRA said.